Some People Never Give Up

God love him, that Jon Nadler. He can make a sentence out of two words and has some incredible turns of phrase, as well as eye catching titles to his pieces. But like my fellow contributor (Jeff Nielson) I am also getting increasingly disturbed by some of the contributions Mr Nadler makes on Kitco.

I get the distinct impression that he has a love/hate relationship with the yellow metal. Perhaps he sold his house in 1980 and invested the whole amount in gold when it hit a top of $850 per oz. Who knows? Waiting can make you bitter. I will be the first to admit that timing is just as important as substance when it comes to investing. Absolute phonies can make you a fortune if you get in and out quickly enough whereas the real McCoy can often give you grief.

But back to Mr Nadler and his November 5, contribution "Wednesday Night Fight". Let's look at some key points:

CHINA AND GOLD

In reference to the possibility of China being the next buyer of IMF gold he says:

"Despite forum and blogosphere chatter that keeps the hype going in the hopes that it will ignite the final rocket stage for the lunar gold landing."

He goes on to quote a senior researcher at the Chinese Academy of Social Sciences as saying that "it would be cheaper for China to buy domestically mined gold than purchase bullion the IMF is seeking to sell..."

How true Mr Nadler, but there are three things to note.

• The fact that the Chinese authorities basically scooped up all of their local production is a clear indication that they were not going to allow the gold to slip out of the country for more paper dollars or euro.
• Secondly, why use foreign exchange when the Chinese can print their own money to pay local producers?
• Finally, China wants to accumulate gold but does not want to ignite its price, so you can be sure that it will find the means to buy gold quietly and cheaply. By the way, there will never be a "final rocket stage" for gold. As long as history continues so will the importance of gold.

GOLD AT $42.20

His next statement defies intellectual gravity when he states:

"Is it 'silly' for the US to value its 8,000+ gold tonnes at $42.20 per ounce? No more than Canada's 3 tonne holding, that is smaller than that of Bangladesh, or the Hon. Ron Paul's futile calls for return of the gold standard, or the abolition of the Fed."

My response in point form is as follows:

• Revaluing the US gold pile serves no immediate purpose
• Mr Nadler tells us that Canada sold its gold but does not mention how much it lost as a result of its decision to do so. Convenient omission.
• If Mr Nadler thinks that the Fed shouldn't be abolished (based on performance) then I suggest he approach Messrs Greenspan and Bernanke to manage his personal finances.
• As for the futile calls for a return to the gold standard, I would like to remind Mr Nadler that the term we hear is GOLD standard and never FIAT standard. The reason for that is because there IS NO FIAT STANDARD.
• As for the comment about Ron Paul, I can only say that the United States was able to prosper without a Federal Reserve for 137 years prior to 1913.

GOLD AND WEALTH

His next statement is truly mind boggling:

"Way too much is being read into such actions, or the lack thereof, mainly by amateur observers who cannot grasp the concept that ALL the gold in the world (163,000 tonnes of it) adds up to 0.6% of total global wealth, and that it is not about to make a comeback as the de facto "currency" of the realm or peg among the world's central banks."

Well there you have it. The sum total of man's monetary history and monetary science condensed into one sentence wherein gold is written off as having any major role. But before you bolt off to sell your wedding ring can I just say this:

• All the gold in the world has never really added up to a substantial portion of the planet's assets in the past so why would it do so now?
• Gold's place in the hierarchy of central bank assets (worldwide) only needs a revaluation so as to bring some sense of proportion between itself and the boundless pieces of paper masquerading as money. Needless to say, it will also require future limitations on "quantitative easing" in all its shades and colours. This is the bit bankers hate.
• If people knew how much money has been printed and combined that knowledge with an understanding of how credit creation works, I suggest that there would be an uprising.
• May I kindly recommend to Mr Nadler (if he has an unmarried daughter) to give preference to the candidate with a gold mine rather than the one with a printing press or a job at the Federal Reserve.
• Finally, Mr Nadler makes the mistake of including in global wealth all the crap (I mean toxic assets) that the bankers have produced in the last 10 years and which now sit in the morgue of the Federal Reserve waiting for the economy to defrost.

I must however give some credit to Mr Nadler for recognising that the dollar's dominance may wane and that the position of gold might be bumped up over the next THREE DECADES. He nearly got it right. I think he may have meant to say "over the next three years". May we live long enough to share a drink at some future date and see who was closer to the mark.

Gold might only make up only 0.6% of the total global wealth, but it is wealth par excellence. Gold is accepted as payment (after conversion into local currency) in any nation. Good land might be more useful than gold but would Mr Nadler accept a quarter acre block of land in Siberia or outer- Mongolia as payment for his services? I think not. Mr Nadler needs to understand that "global wealth" is somewhat different to the concept of "universally acceptable wealth" and that only gold and silver answer to the latter description.

DOLLAR DEVALUATION

"The US dollar cannot be devalued because it's not linked, backed or convertible into anything, which would allow it to be devalued."

This statement is like the curate's egg as it has both good and bad bits. It is true that the US government cannot unilaterally devalue the dollar against ALL other currencies and it is true that it is not backed by anything. (Now that is what I call an admission of guilt by Mr Nadler). However, in case anyone has not noticed, the dollar has for all intensive purposes already taken a beating in recent times in relative value. More importantly it has suffered in percentage terms when one considers the proportion of dollars now making up the reserves of various nations as well as international trade.

ROUBINI v JIM ROGERS

Mr Nadler continues his piece by referring to the titanic match between Messrs Roubini and Jim Rogers. Professor Roubini is of the view that zero cost finance is creating bubbles in gold and emerging markets whereas Jim Rogers is of the view that gold will double within the decade. If Professor Roubini is correct one wonders why the low cost finance is not creating another real estate bubble. Gold's ascent is a mirror image of the US economy's decline. Those that have ignored the descent of the economy to Hades will linger there for a very long time. Professor Roubini may have seen the last crisis coming but he now needs to look forward before he crashes into the next one.

GOLD AT $400

Just for good measure John Nadler quotes (at great length) Seeking Alpha contributor Scott Grannis. This gentleman is of the view that if the Fed was able to raise interest rates the price of gold would be somewhere in the vicinity of $400-$500. Can Mr Grannis also tell me what the price of housing, bonds and shares would be if such an increase took place? With a statement like that no wonder Mr Nadler is quoting him to the tune of 815 words. Why not call in Stephen King to add a little more fear as well? I agree that the cheap rates of interest (without lending standards) got us into this mess as capital is always destroyed by low interest rates. However, how does Mr Grannis envisage rates going up to kill gold without vaporising every mortgagor and mortgagee?

CONCLUSION

The present system has become rotten to the core. The alchemy of governments and banks in relation to finance and economics has become corrupted, disjointed and self serving. Each and every paper asset now consists of a chain of claims and liabilities that ultimately is anchored to very little if anything.

Money in the bank is an illusion that is predicated upon people not asking for their money back en masse. Bank assets are a lie predicated upon true valuations not being applied. Housing values are predicated upon tax credits, ultra low rates of interest, loan modifications and the like.

Gold's value however stands alone as it can neither be duplicated nor found at will in unlimited quantities. There have been no rescue packages or guarantees for gold but only constant threats of Central Bank and IMF sales. Still it survives and thrives.

Ultimately however, the future can only be predicated upon people having jobs and being paid enough to survive and make genuine progress under democratic and peaceful conditions. The current global financial crisis cannot be resolved unless losses are recognised and taken. This is the sticking point as no one knows how to apportion the losses without bringing the whole house of cards down.

For these reasons I often wonder if Mr Nadler's articles have the purpose of making comment or fulfilling an agenda. Whatever the case may be, I can only look at the progress of the gold price over the last decade and compare it to his commentary. Need I say more? Personally, I would be happy to see the price of gold fall should the world economy begin to grow sustainably without recourse to stimulus spending, low interest rates, more debt and money printing. For the time being I do not see this happening. Do you?